73 mutual fund NFOs in nine months of 2012 against 127 in 2007 and 140 in 2008

The number of new-fund offers (NFOs) launched by the mutual fund industry in first nine months of 2012 is at a six-year low owing to volatile equities and change in industry regulations.

The NFO count (excluding FMPs) for the period stood at 73 compared with 127 and 140 for the same period in 2007 and 2008, respectively. The amount mobilised has declined 32% to R4,042 crore compared with R6,001 crore collected in 2011. It is down 88% compared with the corpus of R35,897 crore collected in 2007.

?Except for the relatively newer fund houses, not many fund houses are coming up with new-fund offers because of uncertainty in the equity market and low appetite for equity products,? said Debasish Mallick, MD & CEO, IDBI Asset Management. The benchmark BSE Sensex is up more than 20% in the year to date but there has been no directional trend. The index got a boost in September after the government announced reform measures, but MF investors chose to book profit in equity funds, which saw staggering outflows to the tune of R3,306 crore in the month of September, the most in the last two years.

Fund houses generally focus on launching equity NFOs rather than debt NFOs. According to Mallick, except for FMPs, debt NFOs haven’t gained in popularity with retail investors. Also, traditionally institutional investors have avoided investing in NFOs as these funds don’t have a track record. ?The allotment for NFOs usually takes around 5 days; the listing another 10 days, and institutional investors are reluctant to block their money for this period,? said Mallick.

Fund houses have also become more cautious in launching NFOs. ?In the past year, the focus has shifted to merger of schemes and new fund launches are now more closely monitored by the regulator,? said Dhruva Chatterji, senior research analyst , Morningstar India.

The mobilisation from NFOs would have been even more dismal had it not been for the record number of FMP launches earlier this year. As many as 313 new FMP schemes were launched in the first three months of the year. That number, however, has declined considerably in the past few months as the demand for these instruments has waned following a decline in yields for three-month and one-year papers. Just 261 FMP schemes have been launched in the last six months and only 28 FMPs were launched in the month of September, a 17-month low. The total amount collected by way of FMPs in the first nine months of the year stands at R30,393 crore.

Industry experts believe that mobilisation in NFOs will only improve if the equity market shows a sustained improvement.